Peak Oil and the Death of Suburbia

CURRENT AFFAIRS

Let’s not kid ourselves. We are all living in a fool’s paradise. The reality of peak oil is now upon us. After 147 years of almost uninterrupted growth since Edwin Drake drilled a shallow oil well in Pennsylvania in 1859, production reached a record daily output of some 82 million barrels. At that point in 2006, the planet’s crude oil production began an irreversible decline. Today, for every six barrels of oil consumed, only one new barrel of oil is being discovered to replace them.

Before the world began to use oil so prodigiously, the total amount of oil beneath the surface of the planet was estimated to be about two trillion barrels. Since the middle of the 19th century, the world has consumed about one-half the amount available--one trillion barrels of oil--representing the most easily extracted and the highest quality oil. In the unlikely prospect that the remaining one trillion barrels of oil could be extracted at current costs and rates of production, that oil would last only 37 years. We are indeed living in a fool’s paradise.

Although the number of potential users of gasoline worldwide is growing exponentially, oil today is becoming increasingly harder to find, more expensive to produce and, in the process, more hazardous to the planet. The disastrous tragedy now being played out a mile below the surface of the Gulf of Mexico lays bare the unwisdom of attempting to drill at increasing depths in coastal zones.

The ten largest holders of oil reserves in the world are all state-owned oil companies in countries that aren't particularly friendly toward the West. Resource xenophobia has pushed the world’s giant independent oil companies--Exxon Mobil, Chevron, Royal Dutch Shell, and BP--out of countries such as Mexico, Venezuela, Iran and Libya, reducing efficiencies in those countries as well as supplies of oil from them. As a result, these companies, which once controlled more than half of the world's crude production, have been reduced to about 13%. In 2007, the four big companies spent only $11 billion on exploration. At the same time, they spent $58 billion--five times what they expended looking for oil--to buy back shares of their own stock.

Even more worrisome is the declining production of half of the 20 largest oil-producing countries, which at one time produced 85 percent of all oil produced. Today, half of the world’s oil is supplied by a tiny percentage of the world’s oil fields--a number that underscores the importance of giant fields. For example, six giant oil fields account for all of Saudi Arabia’s production. But production in some of these giant fields has peaked and is beginning to decline, an indication that the world's oil supply has begun an irreversible slide.

Paradoxically, the number of potential users of gasoline worldwide is growing exponentially, yet oil today is becoming increasingly harder to find, more expensive to produce and, in the process, more hazardous to the planet. The disastrous tragedy now being played out a mile below the surface of the Gulf of Mexico lays bare the unwisdom of attempting to drill at increasing depths in coastal zones.

Even more worrisome is the declining production of half of the 20 largest oil-producing countries, which at one time produced 85 percent of all oil produced. Today, half of the world’s oil is supplied by a tiny percentage of the world’s oil fields--a number that underscores the importance of giant fields. For example, six giant oil fields account for all of Saudi Arabia’s production. But production in some of these giant fields has peaked and is beginning to decline, futher confirmation that the world's oil supply has begun an irreversible slide.

What has been truly unfathomable in the world oil picture is why the oil-importing nations engage in cutthroat rivalry for the dwindling supply of oil when a firm united front vis-à-vis the oil exporters would have given them control of the situation. After all, the oil-producing nations have an organization—actually a cartel, called OPEC (Organization of the Petroleum Exporting Countries)—that sets limits on production and thus controls prices. The supine acceptance of allowing themselves to be held hostage by OPEC is only another example of the impotence of once-powerful governments.

Production in oil fields typically declines after about a half-century, and right now the average age of the world's 14 largest oilfields is more than 50 years. Oil from these giant sources still costs surprisingly little to produce--about $1.50 a barrel. Yet it takes voluminous production of low-priced oil from such fields to offset upward price pressure from the newer, more expensive sources like Alberta‘s tar sands in Canada, where oil can cost as much as $60 a barrel or more to produce.

The United States has a mere three percent of the world’s oil reserves but consumes 25 percent of the world’s daily oil production. We have now burned through 70% of our own oil and are so desperate for oil that we are drilling 40,000 new wells a year--a pace that hasn’t been approached in more than two decades. Nevertheless, domestic production continues to decline. Instead of listening to exhortations of “Drill, Baby, Drill,” we would be wiser to buy as much oil as we can abroad, literally husbanding the little we have left for our manifestly dismal future.

Oil is this planet’s most crucial resource. The insatiable worldwide appetite for oil will continue to grow as the planet’s middle class expands. In the coming decade, the world's total population will jump by one billion, and the numbers in its prospering middle class will increase by almost two billion—600 million of them in China alone. Researchers at the Brookings Institution estimate that by 2020 the middle class will comprise 52 percent of the planet's total population--up from today’s 30 percent. By 2025, China will have the world's largest middle class, made prosperous by America’s craving for cheaply made imports manufactured by its almost inexhaustible supply of cheap labor. By 2025, India's burgeoning middle class will have increased to ten times its present size.

As the middle class explodes in China, India and other countries around the globe, hundreds of millions of additional automobiles will give rise to even greater demand for gasoline and other petroleum-based products. Today, the United States has 246 million vehicles--750 cars for every 1,000 persons. China, on the other hand, has only four automobiles for every 1,000 persons. With its much larger population and area, should China achieve even one-half the ownership rate of the United States, it will mean an additional 400 million automobiles on Chinese roads competing with us for petroleum products. That's the equivalent of adding almost twice today’s number of American automobiles to the world’s count. Even if the price of gasoline becomes so astronomically high that it creates diminished demand in the United States and Europe, the use of gasoline will inevitably increase in prospering economies such as China’s, with its GDP growing at 10% annually.

And as the price of oil rises, the cost of energy from other sources. such as coal, natural gas, and plant-based ethanol ,will inevitably climb right along with it. In addition to the problems created by a rapidly rising demand and a decreasing supply of oil, experts estimate that 80% of the world’s refineries, pipelines, drilling rigs, and storage tanks are deteriorating to a point where replacement must soon begin. The price tag for repairing or rebuilding these facilities will cost a cool $50 trillion, and that cost will inevitably have to be passed on to the ultimate consumer. The picture of oil’s future is not pretty.

The automobile created suburbua. And the rising cost of oil to fuel atuomobiles and heat homes will inevitably cause the death of suburbia. Let us next consider the consequences that will befall our fragile suburbian economy with the inexorable increase in the cost of discovering, extracting and refining a diminishing supply of oil. The changes will come in a series of seven wrenching stages.

At some point in the inescapable rise in the price of gasoline, the government will realize that the present policy of a flat tax of 18.4 cents a gallon on gasoline regardless of the price makes no economic sense. Gasoline taxes will perforce be changed to a percentage of the selling price. In Italy, taxes make up 75% of the price of gasoline. In Canada, Australia and New Zealand, they make up 50 percent of the price. In the U.S., taxes (federal + state) make up less than 20 percent of the cost of gasoline to motorists. It is an established fact that as the price of gasoline rises, drivers do less driving.

Stage 1: When gasoline climbed to slightly more than four dollars a gallon in the summer of 2008, we had a portent of things to come. The economy stalled. We Americans reduced our driving by billions of miles. Families cut back on vacations involving travel to distant places. SUV assembly plants shut down. Hybrid cars commanded premium prices at dealerships. Interestingly, even at $4 a gallon, gasoline was actually comparatively inexpensive. Budweiser beer costs $13 a gallon, Coca Cola $8 a gallon, and Evian water $7.50 a gallon.

Because America has had a taste of the effect of gasoline at $4 a gallon, we can make some projections about what life, especially suburban life, will be like at that price and even higher prices. One positive consequence of a return to $4 a gallon gasoline will be 10 million less vehicles on the roads in these United States, mostly SUVs, pickup trucks, and gas guzzlers of every type. It is fashionable to belittle automakers for greedily building behemoth sedans and SUVs and foisting them on the public. The truth is that they were only meeting the driving public’s desire for large and powerful cars, born of widely available cheap gasoline. In 1946, a barrel of oil cost $17.26 in today’s dollars. In 1998, at $15.35 a barrel, it was even cheaper. At $4 a gallon, we can expect an initial surge in the popularity of hybrids or more economical, environmentally friendly diesel-fueled automobiles.

Higher gasoline prices will not be without certain unexpected benefits. In 2008, $4-a-gallon gasoline caused Americans to drive 100 billion fewer miles. Fewer miles driven translate into fewer highway fatalities. A sustained price of $4 a gallon could save as many as 12,000 lives a year--almost one third of the U.S. annual highway death toll. Pushing the price up from $4 to $6 a gallon would save even more highway deaths. Permanently higher gasoline prices will force people to do more walking and bicycling, with a resulting lowering of obesity and early death. Fewer automobiles and trucks on roads and streets will mean reduced air pollution.

Asphalt was once extracted from naturally occurring deposits. It is now a refinery byproduct. A rise in the price of oil and thus of gasoline also will cause the price of asphalt to go up. Today, asphalt coats 94 % of the streets and roads in the U.S. Higher asphalt prices will result in less road paving and road patching projects. Inevitably, poor roads will cause drivers to drive more carefully and slower. Each year we send some 20 billion pounds of deteriorating asphalt roofing to landfills in the U.S. Another benefit from prohibitive costs of asphalt roofing will be longer-lasting, lighter-weight metal roofing made of galvanized steel, aluminum or copper. A metal roof can weigh about one-fifth of what a bulky asphalt roof weighs and may last as long as 75 years with occasional spray painting.

Stage 2: Gasoline at the next increment above $4 a gallon will deal a mortal blow to such activities as the bussing of school children in suburbia. Communities’ school budgets simply will no longer be able to afford the expensive part-time use of huge fleets of vehicles during a brief period in the morning and afternoon of each weekday for nine months of the year. Today’s omnipresent traffic-slowing yellow school busses will be drastically reduced in numbers and used only in outlying rural areas. The exercise resulting from longer walks to school will increase our children’s life expectancy and overcome the growing tendency to obesity in many young people. Police departments will be forced to return officers to foot patrol, resulting in more effective prevention of street crimes like assault and robbery or burglaries.

More than half of the U.S. population lives in suburbia and spends an average of 25 percent of family income on buying, maintaining and insuring the family’s motorcars. As the price of gasoline rises, living in single-family McMansions on quarter- and half-acre lots with a car for every member of the family will prove too daunting for many younger suburbanites. This will prompt an exodus from suburbia and a return to cities large and small, with their many amenities and conveniences. Returnees will live in neighborhoods reclaimed from former slums replete with small shops, instead of shopping centers and malls. Reliable urban mass transit will free them from the financial drain of ownership of multiple numbers of automobiles.

Stage 3: When gasoline reaches the next stage, the internal combustion engine will give up the ghost in favor of the electric automobile. Improved battery technology will yield smaller, lighter-weight batteries that will enable cars to go longer distances. Gasoline stations will add electrical quick-boost charging plug-ins. Gasoline-powered motorboats, jet skis, all-terrain vehicles, snowmobiles, lawnmowers, and snow blowers also will vanish. Few will mourn their absence.

Stage 4: As gasoline makes the next incremental jump, it will bring about the demise of much of an industry whose continued existence at lower fuel price points has surprised many economists--the debt-ridden airline industry. Jet fuel is essentially kerosene--a product of the same refineries that refine gasoline--and. jet fuel prices march in step with those of gasoline. Airlines that survive will be bare-boned examples of their former selves. The number of routes and hubs will be cut back. Short-distance flights will be discontinued, and many smaller cities will find themselves with no commercial plane service of any kind. America will look upon the fast rail service available in Europe and Japan with envy and make plans to emulate them.

The long neglect and skimping on repairs of the country’s once-impressive network of rail lines will be reversed. A diesel-powered train can carry 436 tons of cargo one mile on one gallon of fuel. This is four times the 105 tons that trucks can carry over the same distance on the same gallon of fuel. First, the existing rail network will be improved and extended. Later, high-speed passenger trains rivaling those of European railroads will be added on separate trackage.

Stage 5: As the price of gasoline and diesel fuel continues to mount, the advantages of growing crops year around in California, Florida and Mexico and shipping produce great distances will disappear. Farms will return to the areas around cities. With fertilizer made from natural gas now too expensive, small town dwellers will compost household garbage, and plow up lawns and backyards to plant and harvest organically grown seasonal vegetables as well as potatoes and other nutritious root crops that will keep all winter.

Stage 6: “Big box stores” (so called because of their size and shape, not the products they sell), strip malls and shopping centers will vanish from the periphery of small towns. Without cheap transportation, their customers will simply be unable to reach these beneficiaries of China’s emphasis on foreign trade as a means of achieving prosperity. Moreover, the big box chains will find it economically impossible to maintain the scattered warehouses, distribution centers and fleets of giant tractor-trailer trucks that keep their stores supplied with cheap imported goods. Instead, domestic manufacturing enterprises will spring up. And the concept of living in the suburbs and working in the city will no longer make any sense. Resurgence of small towns will enable people who live in them to work and shop close to home.

Stage 7: We can expect new developments in clean and reliable sources of power generation from hydroelectric, tidal, solar, wind, geothermal, and updated, smaller nuclear sources, as well as widespread improvement in this nation’s ridiculously antiquated and vulnerable electric grid. A century ago, the grid operated at 65 percent efficiency. Today its efficiency stands at only 33 percent. Clean electric power from inexpensive and renewable sources may yet be our planet’s salvation.